9 Important Money Lessons Every Parent Needs to Teach Their Kids

One of the most common questions parents are asked by their children is “Where do babies come from?” But what you should be really discussing is “Where does money come from?” It’s important to teach children the basics of earning and spending money early on, since they tend to develop money habits by age 7. Children are influenced primarily by their parents’ spending habits and general ideas toward money, so it’s up to moms and dads to lead the way and guide their little ones toward financial freedom. But that can be a complicated task, especially if a parent is unemployed, has a lot of debt or tends to splurge on unnecessary purchases.

We want our kids to learn from our mistakes. Fortunately, there are some financial lessons you can teach your children, even if you’re not such a good example yourself. Here are nine important lessons you can start teaching to toddlers, older kids and teens.

Money doesn’t come from the ATM. Well, it does, but that’s not how it’s earned. It doesn’t grow on trees, either. It’s important to teach your children about the concept of earning money and explain that money is not an infinite resource. It does run out if you spend too much, so you must continue to work to make more money. It’s not always available to you at the ATM whenever you want it. The bank is simply a place that stores the money so you can easily access it when you need it.

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Teach them how to budget. Give them money and watch how they spend it. This may seem like an unrealistic approach, but it’s actually a crash course in budgeting. For example, you can go into a toy store and give them $10 to spend. If they buy one item, they may end up with not enough money left over to buy another item they really want. They’ll learn first-hand about budgeting, and while it can be a hard lesson to learn, it’s a lesson they’ll need to know about later in life when they’re living on a limited income.

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You can’t always get what you want right away. We live in a world where virtually everyone wants instant gratification, so this lesson is hard one to swallow for people of all ages. Consumers tend to rack up massive credit card debt by buying stuff whenever they want it. Instead of saving up to buy the item with cash, they just charge their credit cards and end up drowning in debt. So it’s important to teach children early on that they need to save up for the things they want, and as parents, you need avoid giving in to every request. You can help by helping your child save for an item he or she really wants, and this in turn teaches patience – a virtue your child will no doubt need in the adult years.

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Money involves making choices. Who knew having money could be so hard? But you do have to make decisions when spending money because you only have so much. Should you buy the more expensive brand or go for the cheaper store brand? Do we really need to buy cookies this week? Should you buy the steak now or wait for it to go on sale? These are questions that older children can help you with as you shop for groceries. Everything comes with a price, and sometimes you have to scrimp and save in some areas or forget about purchasing the item altogether. It makes shopping less glamorous, but it goes hand in hand with having a budget.

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Start saving early. As your children approach their teens, it’s a good time to start going into more complex money matters. Investing is a good term to discuss, since you want your children to start thinking about long-term goals, like college, buying a high-ticket item like a car or house, or even retirement. You can introduce your child to the concept of earning interest on savings and explaining that saving even small amounts – like $20 a month – can lead to thousands of dollars down the road. Investor is a good website to use to calculate compound interest.

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Plan purchases. Teach your child how to be mindful of their spending. When you impulsively spend money, you end up spending a lot more than you intended. That’s why many shoppers create lists and clip coupons before heading off to the grocery store. Some may also bring cash only, so they can’t be tempted to go over their budget and put it on a credit card. Find some strategies that will help your children become wise shoppers.

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Keep track of expenses. Knowing where your money is going is an important financial skill. When your child spends money, encourage him or her to keep receipts and log expenses into a notebook or a computer file. Your child can see where the money’s going and perhaps find ways to cut costs on the next purchase.

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Encourage responsible credit card use. As your child gets ready to enter college – and adulthood – have a discussion about the purpose of a credit card and how responsible usage can affect interest rates for future purchases, such as a car or home. It may be a good idea to send your teen off to college with a low-interest credit card with a small limit, like $1,000 or so. That way, your child can make small purchases without going too far into debt. At the same time, he or she will begin to build a credit history. Combine that with timely payments and your college student will learn how to be a responsible consumer.

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Don’t forget to share. It’s important to teach children about being charitable. There are people who are less fortunate than us who could benefit from a small donation. There are also other worthy causes that your child could support, like diseases, animal welfare or maybe even a local project at the school or in the community. When your child saves up money, encourage him or her to allocate a portion of it to a worthy cause. You could set up the renowned three-jar method for this purpose: a jar for spending, a jar for saving and a third jar for sharing.

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Teaching money matters can seem like a difficult task for parents, especially when there are so many things we’re responsible for, like keeping our children healthy and providing food, clothing, shelter and other basic necessities. Hopefully these tips will help you give your children a solid foundation of how money works so they know what to do once they start living on their own.

Linsay Thomas is a seasoned writer and editor who has written thousands of articles about topics such as saving money, healthcare, law, pets and education. She hails from California, where she lives with her husband, two children and a menagerie of pets. When she's not writing, she enjoys sports, breeding chocolate Labs and visiting the beach.